Sanctions and their effects on international payments for insurers

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The international travel and health insurance industry had to adapt overnight to another major challenge on February 24, 2022 when Russia launched an invasion of Ukraine that prompted the West to subsequently impose some of the toughest penalties in the history of sanctions compliance.

What are sanctions and what are their implications?

Sanctions are foreign policy tools used by governments and multinational bodies like the United Nations or the European Union. Their goal is to effect behavioral change when used in the context of an overall strategy towards an adversary. The sanctions are intended to protect the security interests of the governments administering these regulations. Economic sanctions have become the tool of choice of the United States, the European Union and the United Nations to punish the illegal activities of international actors or to pressure governments to reverse actions that harm foreign interests or objectives. of foreign policy. Yet sanctions and their potential pitfalls are often misunderstood.

Companies and communities are not prepared in advance for announcements of sanctions; there are usually hints or speculation, but they usually come without notice unlike other legislative initiatives.

The number of sanctions seen in the last month is probably one of the highest in the history of sanctions compliance. The financial industry is learning to implement these sanctions for cross-border payments as they are announced.

Western countries have imposed the toughest sanctions package on Russia, aimed at crippling its economy. The most impactful was the sanction of the Central Bank of Russia as well as the sanction of major financial institutions such as VTB Bank, among others.

Although sanctions can be imposed in the short term, their reversal is much more complicated; there are sanctions in the United States, for example, from the 1950s for Cuba, and we have seen subsequent presidential administrations struggle to lift them.

It is imperative to mention that there is even more room for sanctions. A full financial embargo is also to be expected, which is at the extreme end of the sanctions spectrum and, if implemented, would ban all transactions, including exports and imports with Russia. This would be the last major step in removing Russia from the global economy.

Another important factor to consider is the reputation of the companies. Big names like PayPal, American Express, Ikea and McDonalds have publicly announced they are quitting the Russian market to protest Russia’s actions, but for some brands it has been complicated. Meta (formerly known as Facebook) has announced that it will leave Russia, but Russia is now considering placing them on the terrorist organization sanctions list, which means Meta’s assets will be frozen and remain in Russia. .

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